Assume an mnc establishes a subsidiary where it has

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5.Assume an MNC establishes a subsidiary where it has no other existing business. The present value of parent cash flows from this subsidiary is more sensitive to exchange rate movements when:a.The subsidiary finances the entire investment by local borrowingb.The subsidiary finances most of the investment by local borrowingc.The parent finances most of the investmentd.The parent finances the entire investment6.Other things being equal, firms from a particular home country will engage in more international acquisitions if they expect foreign currencies to ____ against their home currency, and if their cost of capital is relatively _____.a.Appreciate; lowb.Appreciate; highc.Depreciate; highd.Depreciate; low7.The discrepancy between the feasibility of a project in a host country from the perspective of the US parent versus the subsidiary administering the project is likely to be greater for projects in countries where:a.The taxes are the same as in the USb.There are no blocked fund restrictionsc.The currency of the host country is expected to depreciate consistentlyd.None of the above, a discrepancy is not possible8._____ is an input required for a multinational capital budgeting analysis, given that it is conducted from the parent’s viewpoint.a.Salvage valueb.Price per unit soldc.Initial investmentd.Consumer demande.All of the above are inputs required for capital budgeting analysis9.The most important variable in determining a country’s degree of overall country risk:
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Chapter 16 / Exercise 01
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a.Is political riskb.Is financial riskc.Is the probability of a host government takeoverd.May often vary with the country of concern10.According to the text, the most appropriate method of incorporating country risk into capital budgeting analysis is to:a.Compare each form a country risk rating to a benchmark levelb.Estimate the effect of each form of country risk on cash flowsc.Estimate the effect of each form of country risk on the income statement and balance sheetd.Adjust the discount rate to reflect the level of country risk using the conventional adjustment formula that is used by virtually all MNCs11.From an acquirer’s perspective, the ideal conditions would be a weak foreign currency at the time of acquisition and astrengthening of the foreign currency over time as funds are remitted back to the parenta.trueb.false12.The valuation of newly privatized business is generally more difficult than the valuation of a foreign target that has operated privately for several years.a.Trueb.False

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Mr.Guedhami
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Financial Markets and Institutions
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Chapter 16 / Exercise 01
Financial Markets and Institutions
Madura
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